Jul

15

For the past week I've been running Microsoft's Live Search and Google side-by-side and I found the comparative search results fascinating — Peter Norvig appears to have been a very good hire.

I've switched and am now comparing Yahoo Search and Google. At first glance the results are much more equal although the Yahoo results are taking about twice as long to be returned.

As the relationship between the value of the search results for Microsoft, Yahoo and Google change, comparing the relative value of the search results should make for some nice systematic trading opportunities.

Here's the pseudo code for a search engine trading system:

  1. Each week, download the top search terms from the web.
  2. Run each search term through each search engine, grab the results and compare identical items on the first page.
  3. Score each engine on its closeness to the Google results.
  4. As (if?) the gap with Google narrows, adjust the relative weighting of the two/three stocks, pairs trade, etc.

Philip McDonnell extends:

PoindexterGoogle has many advantages over its competitors. They are not standing still, but are expending more resources on their core search engine technology than the competition is. Google is getting better all the time. The competition is shooting at a rapidly moving target.

One of Big G's advantages is its large number of personal customized users. They can tailor your search query to your personal information if you have given them permission. The benefit is greatly enhanced search results. If you queried for 'movie schedules' you won't have to sift through the movie theater listings from Zimbabwe and Outer Mongolia to see what's playing. The top listings will all be in your area - no additional user input is required.

About a year ago they hired an intern who, within 90 days, was able to show the core engineering group a technique to improve search engine performance ten-fold. Initially there had been no interest in the proposal but when it was demonstrated by an actual prototype implementation, the new technology immediately became the top development priority in the company. It is impressive to see a big company that can turn on a dime when a good idea comes along.

Let me give another imaginative example where the company has an edge. Suppose Cramer comes on the air and recommends his latest Turkey Inc. (symbol: TURK) stock. Millions race to their favorite search engine to check it out. Because of their large sample and rapid search ability they can actually alter their search rankings based upon recent interest as correlated with user personal information. The investing parent will get the stock page, the cook will see a turkey recipe, and the school child will get a page full of information on the country Turkey. It is truly impressive technology that is advancing rapidly, perhaps faster than the competition can imagine.

It is often said that imitation is the sincerest form of flattery. It certainly applies in this case as there is a growing trend for competing search engines to simply scrape off Google's top results as their own. 

Alston Mabry adds:

Interesting essay on Norvig's site: Teach Yourself Programming in Ten Years

Researchers have shown it takes about ten years to develop expertise in any of a wide variety of areas, including chess playing, music composition, painting, piano playing, swimming, tennis, and research in neuropsychology and topology. There appear to be no real shortcuts: even Mozart, who was a musical prodigy at age 4, took 13 more years before he began to produce world-class music.


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2 Comments so far

  1. Mr, Kristian Blom on July 15, 2007 5:02 pm

    Market neutral nonsense?

    All events are associated with all other events.
    One cannot generalize from artificially separated data.

    When fundists of the day claim to be market neutral, delta neutral etc., they are really saying that volatility does not distribute itself idiosyncratically and that when one let’s ones dog out in the morning, one can predict and trace its exact path until the evening when one lets it back in.

    Multiply this feat by the number of issues in a portfolio and we can safely say that there must be another explanation for the prevalence of “market neutral” funds.

    I personally do not understand how this methodology persists.

    Perhaps you lot, with greater experience, can explain what is really going on here? Is it really that if you want an allocation from an institution, an institution that has been brainwashed into believing that market neutral is safe by one too many academic papers, one has to claim market neutrality?

  2. Robert Ray on July 15, 2007 10:24 pm

    One has to wonder if the hype behind an up and comer won’t simply give Google improved ideas to steal. Powerset to launch in September
    http://www.powerset.com/

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